No cheer from bailed-out banks
The Treasury – and the taxpayer – are likely to be disappointed by results from RBS and Lloyds
Sunday 19 February 2012
The UK taxpayer can expect little solace this week from the two high-street banks which were bailed out to the tune of £63bn at the height of the financial crisis.
Royal Bank of Scotland (RBS) and Lloyds Banking Group will reveal their 2011 results this Thursday and Friday, but neither is likely to provide great cheer for the Treasury which is currently sitting on a loss of £16.2bn and £7.7bn respectively on its stakes in the two banks.
The results will also be the first public outing for the banks' respective chief executives since each hit the headlines for different reasons.
Stephen Hester chief executive of RBS turned down his £963,000 annual bonus after coming under heavy political and public flak. His chairman, Sir Philip Hampton, also turned down a £1.4m share bonus.
Since then, Mr Hester has come out fighting to shift the agenda away from his pay and back to his task of turning RBS around. On Thursday, he is expected to outline where he is in terms of these plans. It is likely he will tell investors that his original five-year plan, which ran to the end of 2013, is still on track but could take an extra two years to complete. He will blame the increased regulation of banks, the greater amounts of capital required, and the sluggishness of the UK economy for the delay.
Shareholders will hope for more details on how RBS will scale down its investment banking arm and at what cost – as much as £1bn in 2012 – and perhaps an update on the sale of its insurance business which has to be done next year.
UBS analysts forecast a near doubling in operating profits to £3.3bn, but a sharp rise in pre-tax losses from £413m to £2.1bn largely due to smaller profits in investment banking.
Lloyds chief executive Antonio Horta-Osorio announced last month that he wouldn't take his annual bonus – which could have been worth up to £2.4m – after he had eight weeks' sick leave because of extreme exhaustion.
He has rejigged his senior management team to reduce the lines of command which report to him and take off some of the day-to-day pressure as he concentrates on the strategic future of the bank. Investors will be hoping for an update on Project Verde, under which Lloyds is in exclusive talks to sell 632 of its branches to the Co-op Bank for some £1bn.
Friday will also be the last outing for finance director Tim Tookey, although no date has yet been confirmed for his replacement, George Culmer, to arrive from RSA Insurance.
The most recent consensus forecast for Lloyds from the City is for a loss of £4bn on a statutory basis. Last year, the equivalent figure was a small profit of £281m.
On an underlying basis and excluding one-offs such as the payment protection insurance write-off, the consensus is just below £2bn compared with a £2.2bn profit as reported last year. Bank watchers will also look with interest at the scale of levy that both banks pay to the Treasury.
Barclays came in slightly under estimates recently with a £325m charge. If RBS and Lloyds do similarly the Chancellor, George Osborne, may need to tweak the rate up again if he wants to hit his target of collecting £2.5bn a year through the levy.
Neither bank will pay a dividend to their shareholders.
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